The supposedly dovish April FOMC statement - as global fears fell and turned domestically - has left bonds and bullion the winners and stocks the losers as investors lose faith in The Fed's forecast and economic promises. Today's FOMC meeting minutes suggest an increasingly cornered Fed will pull the trigger iun June with member disagreements brewing...
- *MOST FED OFFICIALS SAW JUNE HIKE `LIKELY' IF ECONOMY WARRANTED
- *FED: RANGE OF VIEWS ON WHETHER DATA WOULD SUPPORT JUNE HIKE
Of course, no matter what narrative the market perceives from these minutes, tomorrow's speeches by Dudley and Fischer (who has been conspicuously quiet recently) will likely give the biggest hint as to what happens next.
- *FED: MANY OFFICIALS NOTED GLOBAL RISKS NEED `CLOSE MONITORING'
- *FED: OFFICIALS WANTED TO KEEP `OPTIONS OPEN' FOR JUNE
Since The April FOMC Statement, stocks are the laggard, gold and bonds outperforming while Oil has spiked 9%!!??
And ED Futures have rallied (dovish) and sold off (hawkish) back to unchanged...
If The Fed doesn't go after this statement, then all credibility will be lost.
Here are the key statement excerpts:
June rate hike may be warranted:
Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.
The Fed remains worried about foreign developments:
Many participants noted that downside risks emanating from developments abroad, while reduced, still warranted close monitoring. For these reasons, participants generally saw maintaining the target range for the federal funds rate at ¼ to ½ percent at this meeting and continuing to assess developments carefully as consistent with setting policy in a data-dependent manner and as leaving open the possibility of an increase in the federal funds rate at the June FOMC meeting
* * *
Many participants noted that downside risks emanating from developments abroad, while reduced, still warranted close monitoring
So much so that "global" was used 15 times in the April minutes.
The Fed is also worried that the market is underestimating the Fed. In fact, the following statement may be the most important one.
Some members expressed concern that the likelihood implied by market pricing that the Committee would increase the target range for the federal funds rate at the June meeting might be unduly low
However, the market may be right again:
Regarding the possibility of adjustments in the stance of policy at the next meeting, members generally judged it appropriate to leave their policy options open and maintain the flexibility to make this decision based on how the incoming data and developments shaped their outlook for the labor market and inflation as well as their evolving assessments of the balance of risks around that outlook.
Worries about brexit just after the June meeting:
Some participants noted that global financial markets could be sensitive to the upcoming British referendum on membership in the European Union or to unanticipated developments associated with China’s management of its exchange rate
And the usual worries about an asset bubble.
Several noted the ongoing need to remain alert to vulnerabilities in the financial system. In that regard, a few cited concerns about rapidly rising prices of CRE, including multifamily properties, or about illiquidity of the assets of some mutual funds. It was also noted that the debt situation in Puerto Rico had deteriorated further over the intermeeting period and remained unresolved. To date, the situation had not led to strains in broader financial markets and was not expected to do so
But before everyone assumes the statement is unduly hawkish, note the following statement:
participants generally agreed that the Committee should not completely rule out the possibility of using monetary policy to address financial stability risks, particularly in circumstances in which such risks significantly threatened the achievement of its dual mandate and when macroprudential tools had been or were likely to be ineffective at mitigating those risks
And then this shocker:
participants stressed the need for further research and analysis to advance understanding of the relationship between monetary policy and financial stability and to help identify situations in which it might be desirable to incorporate financial stability considerations in the design of monetary policy.
Yes, that would be useful.
Of course, at the end of the day, it's all about this:
Full FOMC Meeting Minutes...